Japan suffers worst economical slump in five years
17 February, 2020
Japan has suffered its worst quarterly gross domestic product (GDP) contraction in more than five years, with a tax hike and a deadly typhoon taking a toll on the world's third-largest economy.
The country's GDP in the 90 days to December shrank 1.6 % from the prior quarter, even prior to the COVID-19 outbreak in China hit Japan, according to official data published on Monday (Feb 170.
The quarter was marked by a growth in consumption tax from 8 per cent to 10 %, together with Typhoon Hagibis, which killed a lot more than 100 persons and caused widespread flooding.
Economists were braced for a contraction of around 1 % but hadn't expected such a poor figure, with Takeshi Minami, chief economist at Norinchukin Research Institute, saying it had been "quite an undershooting".
"There was popular from natural disasters but consumer sentiment was particularly weak after the tax hike despite government measures to help ease the impact," he told AFP.
Monday's data snapped four quarters of growth and was the largest contraction because the second quarter of 2014 when the economy shrank 1.9 %.
That quarter followed a hike in the sales tax from 5 % to 8 % and the most recent slump also appears to have been affected by a growth in consumption tax to 10 per cent that came into influence on Oct 1.
Private consumption was hard hit, dropping by 2.9 % - the first fall in five quarters.
Expenditure on factories and equipment decreased 3.7 % despite investment obtaining a boost from cashless-payment systems that allow consumers to ease the consumption tax hike.
"BLEAK PROSPECTS"
Economists are actually carefully watching to see what impact the new virus will have on the world's third-largest economy, as it hits Japanese companies' manufacturing activities and tourism.
Japan has only a "bleak" prospect of time for growth in the first quarter of the year, said Minami.
Private consumption may likely pick up from the October-December quarter but how much it'll recover in the coming months would depend on the spread of the virus, he said.
"Also, exports might struggle as delays of parts shipments from China could disrupt supply chains," he said.
He added it had been "possible" that the economy will shrink for another consecutive quarter, the technical definition of a recession.
Health minister Katsunobu Kato on Sunday urged the general public to avoid crowds and "non-essential gatherings", including Japan's notoriously packed commuter trains, to prevent the virus from spreading.
However, Naoya Oshikubo, senior economist at SuMi Trust, predicted the COVID-19 outbreak would not impede recovery in the first quarter of 2020.
"External demand should continue to grow in Q1 2020 regardless of the outbreak of COVID-19, which we forecast to have only a tiny effect on Japan's inbound tourism industry, which constitutes only 0.8 per cent of real GDP," he said in a commentary ahead of the data release.
"Going forward, we should see positive growth in Q1 2020 and beyond. Domestic consumption should recover as the impact of the bigger consumption tax abates," he said.
"In addition, with the Tokyo Olympics only a couple of months away, we will certainly visit a significant positive economical impact of the Games for japan economy."
Japan's government is to allocate 15.3 billion yen (US$139 million) to fight the economical impact of the virus, including measures to improve airport inspections and testing capacity.
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